Win One, Lose One: A New Defense for California

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1 Win One, Lose One: A New Defense for California 9/15/2001 Employment + Labor and Litigation Client Alert This Commentary highlights two recent developments in California employment law: (1) the recent California Supreme Court decision in Richards v. CH2M Hill defining the reach of the "continuing violations" doctrine to resurrect otherwise timebarred claims of disability discrimination and harassment brought under the California Fair Employment and Housing Act ("FEHA"); and (2) the Ninth Circuit's decision in Kohler v. Inter-Tel Technologies holding that the federal affirmative defense to claims of sexual harassment by a supervisor set forth by the U.S. Supreme Court in Ellerth and Faragher also applies to claims brought under FEHA. California Supreme Court Decision Extends the Statute of Limitations for Discrimination and Harassment Claims Under FEHA In Richards v. CH2M Hill, Inc., 2001 WL (August 23, 2001), the California Supreme Court articulated a new standard for application of the "continuing violations" doctrine to a case involving claims of disability discrimination and harassment under FEHA. Under this standard, employees will be permitted to introduce evidence of incidents of discrimination and harassment that would otherwise be time-barred under the one-year statute of limitations for FEHA claims if the employee can establish that the actions (1) are sufficiently similar to incidents occurring within the limitations period; (2) have occurred with sufficient frequency; and (3) have acquired a degree of permanence. Thus, in the vast majority of cases, there is now no clear-cut rule for when the statute of limitations will begin to run on an employee's FEHA claim for discrimination or harassment. As long as the employee is able to establish that at least one incident of discrimination or harassment occurred during the applicable statute of limitations, incidents that occurred perhaps months or even years earlier may not be considered time-barred and could be relied upon by the employee to establish a claim. Facts and Procedural History of CH2M Hill The plaintiff, Lachi Delisa Richards, was hired by CH2M Hill, Inc. as a civil engineer in In October of 1988, Richards was diagnosed with multiple sclerosis, a progressive, debilitating disease of the central nervous system. In March of 1989, Richards took a leave of absence from CH2M Hill, which lasted approximately 10 months. When Richards returned to work in January of 1990, she worked an average of 20 to 25 hours per week, performing some of her work at the office and some of her work at home. In February of 1993, Richards resigned her position at CH2M Hill. From approximately 1988 through Richards's resignation in February of 1993, a number of issues arose regarding CH2M Hill's accommodation of Richards's disability. These included: (1) Richards's request for a transfer from the Redding office to the Sacramento office; (2) Richards's request for a computer to allow her to perform work at home; (3) Richards's request for a bed so that she could rest during her breaks and at lunchtime; (4) the location of Richards's office; (5) Richards's request for a flexible work schedule and permission to perform some work at home; (6) Richards's requests on access issues; and (7) CH2M Hill's assignment of Richards to strenuous field work. On or around January 27, 1993, Richards met with her department manager regarding her performance evaluation. At this meeting, Richards submitted written comments regarding several outstanding issues related to CH2M Hill's accommodation

2 of her disability. Richards alleges that, at this meeting, her manager informed her that she was "facing a brick wall and that nothing was going to change." After the meeting, Richards' manager gave the comments to a human resources administrator who began working towards resolving Richards' concerns. Before the issues could be resolved, Richards submitted her resignation on February 22, Richards filed her administrative complaint with the California Department of Fair Employment and Housing on January 25, She requested a right-to-sue letter and filed suit against CH2M Hill alleging (1) disability harassment under FEHA; (2) disability discrimination under FEHA; (3) constructive discharge in violation of public policy; and (4) intentional and negligent infliction of emotional distress. At trial, Richards introduced evidence of incidents of disability discrimination and harassment that had occurred over a five-year period of her employment with CH2M Hill. This evidence was admitted by the trial court under the "continuing violations doctrine." The jury found in favor of Richards and awarded her $925,000 in emotional distress damages and $476,000 in economic damages. CH2M Hill moved for judgment notwithstanding the verdict and for a new trial on the basis that evidence of any conduct which occurred outside the limitations period should not have been admitted. The trial court denied the motion. CH2M Hill appealed this decision to the Court of Appeals, and the Court of Appeals found that the trial court had misapplied the continuing violations doctrine and improperly allowed the jury to award damages to Richards based on conduct occurring outside the limitations period. The Court of Appeals took the view that the statute of limitations on Richards' claim began when she "knew or should have known" that her rights were being violated. The court then remanded the case to the trial court for a redetermination of the damages limited to incidents that had occurred within the limitations period. The California Supreme Court reversed this decision and remanded the case to the trial court for reconsideration of CH2M Hill's motion for a new trial in light of the Court's opinion defining the appropriate scope of the continuing violations doctrine. Legal Analysis of CH2M Hill Under FEHA, an employee has one year from "the date upon which the alleged unlawful practice or refusal to cooperate occurred" within which to file a complaint with the California Department of Fair Employment and Housing ("DFEH"). Cal. Gov't Code However, under the continuing violations doctrine, an employee may be allowed to introduce evidence regarding unlawful conduct occurring outside the limitations period if the conduct outside the limitations period is sufficiently connected to the conduct within the limitations period. The continuing violations doctrine has been considered "the most muddled area in all of employment discrimination law." See Lindenmann & Grossman, Employment Discrimination Law (3d ed. 1996) p In CH2M Hill, the Court addressed the question of the proper scope of the continuing violations doctrine and held that "an employer's series of unlawful actions in a case of failure to reasonably accommodate an employee's disability, or disability harassment should be viewed as a single, actionable course of conduct if (1) the actions are sufficiently similar in kind; (2) they occur with sufficient frequency; and (3) they have not acquired a degree of permanence' so that employees are on notice that further efforts at informal conciliation with the employer to obtain accommodation or end harassment would be futile." In so holding, the Court stated: "[W]e do not believe the FEHA statute of limitations should be interpreted to give a disabled employee engaged in the process of seeking reasonable workplace accommodation or ending disability harassment

3 two unappealing choices; on the one hand resigning and bringing legal action soon after the first signs that her rights have been violated, or on the other hand attempting to persist in the informal accommodation process and risk forfeiture of the right to bring an action altogether. Nor, as we have recognized, is the third choice - retaining employment while bringing formal legal action against the employer - a viable option for many employees." The Court emphasized that, because the law requires an employee and the employer to engage in an ongoing, interactive process to determine the appropriate reasonable accommodation for the employee's disability, it is logical to view an employer's failure over time to reasonably accommodate a disabled employee as a single course of conduct rather than an isolated incident for purposes of determining when the statute of limitations should begin to run. In an attempt to clarify the uncertainty regarding when the statute of limitations for claims of failure to reasonably accommodate an employee's disability or disability harassment will begin to run, the Court stated that the statute of limitations for such claims begins to run either (1) when the conduct ceases, either because the employer has stopped engaging in the conduct or the employee has resigned; or (2) when the employee is first on notice that any further attempts to stop the conduct would be futile. Thus, in the case of a failure to reasonably accommodate an employee's disability, the statute of limitations will begin to run either (1) when an employer grants an employee's request for a reasonable accommodation; or (2) when the employer refuses to grant such a request and makes it clear to the employee that the request will not be granted. Further Thoughts The California Supreme Court's decision in CH2M Hill opens the door for employees to bring claims encompassing virtually years of alleged unlawful conduct if there is any evidence that these actions are sufficiently similar to incidents within the limitations period, occur frequently and have not acquired a degree of permanence. Thus, an employer can no longer assume that any incidents that occurred over one year prior to an employee's bringing a claim will be time-barred. Accordingly, it is now even more important for employers to keep detailed records of employee complaints of discrimination or harassment or requests for reasonable accommodation and how these complaints were addressed, as claims related to these issues may arise many years after the fact when memories of the incidents may have faded and key personnel involved in the incident may have left the company. The Court's holding in CH2M Hill suggests that if an employer can establish that it granted an employee's request for a reasonable accommodation or addressed an employee's complaint of harassment over one year prior to the employee's filing a claim, that prior incident would be time-barred and would not be admissible under the continuing violations doctrine. Affirmative Defense to Claims of Supervisor Harassment Available Under FEHA The Ninth Circuit's decision in Kohler v. Inter-Tel Technologies, 244 F.3d 1167 (9th Cir. 2001), answered what had been an unresolved question regarding whether the federal affirmative defense to claims of supervisor harassment brought under Title VII of the 1964 Civil Rights Act ("Title VII") set forth in the Supreme Court's decisions in Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 118 S. Ct (1998), and Faragher v. City of Boca Raton, 524 U.S. 775, 118 S. Ct (1998), would also apply to claims brought under FEHA. (See our July 1998 Commentary on these cases.) In affirming summary judgment for Inter-Tel, the Court held that the company was not liable to the plaintiff, Leslie Kohler, for her supervisor's alleged sexual harassment because Kohler did not suffer any adverse employment action and Inter-Tel was able to establish the two prongs of the affirmative defense: (1) that Inter-Tel exercised reasonable care to prevent and correct the harassment; and (2) that Kohler unreasonably failed to take advantage of the company's complaint procedures. Factual Background and Procedural History of Kohler

4 Leslie Kohler worked at Inter-Tel as a project coordinator from August 17, 1997 through December 19, Throughout her employment with Inter-Tel, Kohler was supervised by Edward Herrera. Kohler contends that, beginning in August of 1997, Herrera subjected her to sexual harassment in the form of unwelcome sexual remarks, sexual advances and physical contact. In December of 1997, Kohler resigned her employment with Inter-Tel. After her resignation, Kohler filed complaints with the Equal Employment Opportunity Commission ("EEOC") and the California Fair Employment and Housing Commission ("FEHC"). Kohler then filed suit against Inter-Tel, alleging sexual harassment, discrimination and retaliation in violation of Title VII of the 1964 Civil Rights Act and FEHA and constructive discharge in violation of public policy. The district court granted Inter-Tel's motion for summary judgment, holding that Inter-Tel had established a complete affirmative defense to each of Kohler's claims. Kohler appealed the district court's decision regarding her claims of sexual harassment and retaliation under FEHA. On appeal, the Ninth Circuit Court of Appeals affirmed the decision of the district court. Legal Analysis of Kohler In Ellerth and Faragher the Supreme Court held that, under Title VII, an employer has an affirmative defense to an employee's claim of hostile work environment by a supervisor if no tangible employment action had been taken against the employee and the employer could satisfy a two-pronged affirmative defense by establishing that the employer exercised reasonable care to prevent and correct the harassment and the employee unreasonably failed to take advantage of any preventative or corrective opportunities or otherwise failed to avoid harm. The district court held that Inter-Tel had set forth undisputed facts satisfying each of the elements of this affirmative defense. On appeal, Kohler argued that the affirmative defense was not applicable to her FEHA claims because California courts have held that an employer is "strictly liable" under FEHA for the harassing conduct of a supervisor. Kohler, 244 F.3d at In determining that the affirmative defense was available to Inter-Tel on Kohler's FEHA claims, the Ninth Circuit emphasized that the California courts have consistently looked to Title VII for guidance in interpreting FEHA. The Court also pointed to the language of FEHA, which states that employers "shall take all reasonable steps to prevent harassment from occurring," as providing "an even stronger basis for applying the federal affirmative defense than does Title VII itself." The Court then applied the affirmative defense to the specific facts of the case. As a preliminary matter, the employer must establish that no tangible employment action was taken against the employee. As defined by the Supreme Court in Ellerth, supra, "A tangible employment action constitutes a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits." 524 U.S. at 761. Kohler claimed that, after she rejected Herrera's advances, he acted angrily toward her, withheld training and assistance, and gave her inconvenient work schedules and a poor performance review. The Court determined that it was "questionable" whether any of these actions constituted a tangible employment action, as none of them caused "a significant change in employment status." Further, Kohler was unable to demonstrate a causal connection between her rejection of Herrera's advances and any of the alleged employment actions. Next, the Court determined whether Inter-Tel had "exercised reasonable care to prevent and correct promptly any sexually harassing behavior." As to this issue, there was ample evidence that Inter-Tel had a comprehensive anti-harassment policy which defined sexual harassment, identified whom employees should contact if they were subjected to sexual harassment, ensured employees that they did not have to complain to their own supervisor if he/she was the harassing party, described

5 the disciplinary measures the company could take in a harassment case, and stated that retaliation would not be tolerated and that this policy was distributed to all employees on their first day of work. It was undisputed that Kohler had received and read the policy. Further, in the Court's view, Inter-Tel was "exemplary" in handling its investigation of Kohler's allegations. Upon learning of Kohler's allegations from the EEOC, Inter-Tel hired a neutral third party to investigate Kohler's allegations. Inter-Tel wrote to Kohler extending her an offer to return to her position at the Company, promising her a new supervisor and the same terms and conditions of employment. Inter-Tel also offered to pay Kohler back pay from the time of her resignation through her reinstatement. Kohler did not respond to Inter-Tel's offers. Kohler also refused to participate in the investigation and, thus, the investigator was never able to interview Kohler to make a conclusive determination regarding whether she had been harassed. Finally, the Court examined whether Kohler "unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer or to avoid harm otherwise." As to this issue, Kohler admitted that she was aware of Inter-Tel's sexual harassment policy and had reviewed it. Kohler further admitted that she had never complained about Herrera's behavior to anyone at Inter-Tel during her employment. Kohler also never informed anyone that she was quitting because of sexual harassment. Based on these facts, the Court concluded that Inter-Tel had satisfied the second prong of the affirmative defense and, therefore, was entitled to summary judgment on Kohler's FEHA claims. Further Thoughts The Ninth Circuit's decision in Kohler was a big victory for California employers. Kohler confirms that employers confronted with FEHA claims involving harassment by a supervisor will be able to assert the affirmative defense previously announced in the Supreme Court's decisions in Ellerth and Faragher. The decision emphasizes the importance of promulgating a comprehensive anti-harassment policy and taking prompt, remedial action in response to an employee's complaint of sexual harassment. In order to take advantage of the affirmative defense, an employer will need to demonstrate that it had an anti-harassment policy which was known to the employee and that the employee failed to utilize the complaint procedure outlined in the policy. Insurance Adjusters Win $90 Million Verdict in Suit for Unpaid Overtime On July 10, 2001, approximately 2,400 current and former Farmers Insurance Exchange adjusters were awarded more than $90 million by an Alameda County jury on claims that they were denied overtime compensation. The jury trial was limited solely to determining the amount of damages to be awarded to the plaintiffs pursuant to their claim that Farmers violated the California Labor Code by failing to pay them overtime. In 1999, the plaintiffs had won summary judgment on the issue of whether they were entitled to overtime compensation on the grounds that Farmers had improperly classified them as exempt administrative employees. In a decision issued in March of 2001, the Court of Appeals affirmed that ruling, holding that the claims representatives could not be properly classified as exempt administrative employees, given their job responsibilities. The court found that the employees were engaged in the production work of the company and not administrative functions related to management and business policy. Farmers plans to appeal the verdict to the California Supreme Court. The question whether an employee is exempt or non-exempt is often a very complicated question requiring a fact-specific inquiry into the exact nature and scope of the employee's job duties and responsibilities. This case strongly illustrates the

6 potential dangers of improperly classifying an entire group of employees as exempt when they may be, in fact, entitled to overtime compensation. California Supreme Court to Review Colmenares v. Braemar Country Club In our August 2001 Employment Law Commentary, we reported on the conflicting decisions reached by the California Court of Appeals in Colmenares v. Braemar Country Club Inc., 89 Cal. App. 4th 778 (2001), and Wittkopf v. County of Los Angeles, 109 Cal. Rptr. 2d 543, 2001 WL (Cal. App. July 24, 2001), regarding whether the new legislative definition of "disabled" applied retroactively. As we noted in the August 2001 issue, prior to the passage of AB 2222, courts generally interpreted the California Fair Employment and Housing Act ("FEHA") to require that an employee show that he or she was substantially limited in a major life activity to prove that the employee was a disabled person under the Act. Under AB 2222, the Legislature revised the definition of "disability" to require only that the employee be limited in a major life activity, thus greatly expanding the definition of disabled employees to include many individuals that would not have been considered disabled under the law as previously written and interpreted. As we further noted, two recent state court decisions from two different panels of the same appellate court, Colmenares v. Braemar Country Club and Wittkopf v. County of Los Angeles, have reached contradictory conclusions. Colmenares held that AB 2222 should not be applied retroactively under the general rule that, in the absence of a retroactivity provision, a statute which has been substantially changed should not be applied retroactively. Wittkopf, on the other hand, held that AB 2222 was not a substantial change to the law and, instead, merely clarified the law and, therefore, should be applied retroactively. On August 24, 2001, the California Supreme Court granted the petition for review in Colmenares. The California Supreme Court's decision in the Colmenares case will decide whether AB 2222 should be applied retroactively. Until this question is decided, employers looking to avoid liability should assume that all employee disability claims, even those arising prior to January 1, 2001, could be covered by the new definition of "disability." Upcoming Disability Law Briefing With the Richards decision and other recent significant changes to California's disability law, it is more critical than ever that employers thoroughly familiarize themselves with their legal obligations to accommodate disabled employees, and update their compliance strategies. To assist employers, Morrison & Foerster's Labor and Employment Law Department is planning a series of workshops for employers that will be held in locations throughout California. Through expert information and case studies you will learn about: What the "interactive process" of determining potential accommodations really entails Job accommodation forms, tools, and resources How to conduct an accommodation meeting Documenting and monitoring company efforts Managing conflict between performance standards and disability accommodations Assessing the "undue hardship" and "direct threat" defenses

7 We will be sending out workshop information, schedules, and registration materials in the near future. In the meantime, please do not hesitate to contact any of the Department attorneys listed on the sidebar if you have questions regarding this topic.